Here is a typical scenario of a company who has been trying to enter into the government contracting space. They have been struggling for a couple years having meetings with contract officers, identifying agencies who might be interested in their product or service. Meanwhile the owners are using whatever resources they have available to keep their company somewhat viable. This creates a real drag on the financial condition of the company as they try to win task orders and awards.

Finally the day comes when they receive a contract award, which unfortunately doesn’t start right away but will ramp up quickly once it does. This can leave the contractor in a vulnerable position. Due to the weakness in their balance sheet and income statement, qualifying for a bank loan could be a non-starter.

So how to access ongoing working capital on a regular basis to help fuel the new contract? This is a very good question for which receivables factoring is probably the best answer. Using factoring to provide the necessary capital to perform on the contract will increase the likelihood of more contracts in the future. By leveraging the accounts due on finished work to pay off labor and bills a contractor will keep the CO satisfied with the contract outcome.

Knowing which tools to use for the situation at hand is a sign of good mature management.

One of the complaints small businesses make is Government agencies stick to bigger vendors and don’t try out new smaller companies. The reason for this, contract officers don’t like problems. If a contract gets awarded to a small vendor who proceeds to mess up the work, it means a headache and more work for the CO. It’s really that simple. This is why people who teach how to sell to the Government stress the fundamental of building relationships. If the CO feels they know you and can trust you and can see a history of performance, they know a contract award won’t come back to haunt them later.

Many small companies think if they land a large Government contract, it’s like money in the bank and the bank should lend them some money. Unfortunately it does not work this way, especially when a business does not have an established track record. If a small business bids on a contract (which they have not been awarded yet) and they try to secure “mobilization” capital, the chances of securing funds will be near impossible. Mobilization capital is money needed up front to get a contract started. In other words, the small business is underfunded to the extent they cannot purchase materials or vehicles and hire enough people to work on the contract in order to get it started.

When an agency is considering all the solicitations for bid on a particular contract, definitely one item they have a sharp eye on is the financial condition of the small business. Your balance sheet will tell them whether you can perform on the contract. They want to see you have already secured the necessary funding ahead of time for the contract you are bidding on.

If a company is looking to secure bank financing, they need to show historical profit and income to qualify for a loan. If the loan needed is much larger, due to the possibility of maybe getting a contract, than its historical financial statements the outlook is not so good. Yes banks will lend on Government contracts, to well established performers who are already working on multiple contracts with significant assets built up and a strong balance sheet.

One capital solution may be receivables financing from a factoring company. Because the decision to fund is based on the customer credit (US Gov) this essentially gives the borrower an unlimited supply of capital provided they can perform to the point of invoicing a customer. Unfortunately invoice factoring will not provide mobilization, or up front capital, to get the contract started. But a factoring company may provide a letter of approval to be included in a solicitation bid for the purposes of showing the financial wherewithal to do the scheduled work.

In the end, to win a contract award, the financial ability to perform plays an important role.

TeamingUSA.com is a fantastic organization for entrepreneurs looking to get into the Federal market. The website provides a platform whereby your company can list, for free, all its capabilities. Using NAICS codes and keywords, companies looking to partner up to win a contract award can find each other. Here is what they say;

Government agencies â€” federal, state or regional â€” represent a tremendous market for small businesses. According to the Small Business Administration, annual spending by government agencies with small businesses reached $83.27 billion for fiscal year 2007, up from $77.76 billion the previous year, and continues to grow. Additionally, stimulus funding is providing even more opportunities for small business owners to sell to the government. Many contracts include a variety of goods and related services under a single bid or RFP. The government refers to this as contract consolidation; in other circles itâ€™s referred to as â€œbundling.â€ Consolidating contracts increases government efficiency by reducing administrative overhead of managing multiple contracts.

One of the smartest strategies for competing in a government market with increasing numbers of bundled contracts is through teamingâ€”finding and joining forces with the right partners for the right contracts. Teaming is the strategy for small businesses looking to win government contracts. Finding companies with complementary skills, resources and capabilities gives you the opportunity to expand your existing government business and increase your bottom line.. Teaming also helps eliminate barriers an individual business owner may face vis-Ã -vis geographic reach or workforce. Finally, teaming is also a tactical starting point for gaining experience and credibility in the government market if you are relatively new to the field.

Flexibility, reliability, and dedication are the main ingredients to pursue when considering a source for your financing. Look no further than the steady growth and dependable service CCA provides all our clients. Click here to learn more.